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The role of optimal threats in auction design

  • Figueroa, Nicolás
  • Skreta, Vasiliki

This paper studies revenue-maximizing auctions when buyers' outside options depend on their private information and are endogenously chosen by the seller. We show that the revenue-maximizing assignment of the object can depend crucially on the outside options that the seller can choose as threats. Depending on the shape of outside options, sometimes an optimal mechanism allocates the object in an ex-post efficient way, and, other times, buyers obtain the object more often than is efficient.

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File URL: http://www.sciencedirect.com/science/article/B6WJ3-4V47CMY-4/2/4874b18d7dc15c2158e993830dbc8601
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 2 (March)
Pages: 884-897

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:2:p:884-897
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  9. Krishna, Vijay & Maenner, Eliot, 2001. "Convex Potentials with an Application to Mechanism Design," Econometrica, Econometric Society, vol. 69(4), pages 1113-19, July.
  10. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
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  13. Manelli, Alejandro M. & Vincent, Daniel R., 2006. "Bundling as an optimal selling mechanism for a multiple-good monopolist," Journal of Economic Theory, Elsevier, vol. 127(1), pages 1-35, March.
  14. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  15. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
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